There’s lots of different components that go into a successful trading strategy. However, there’s one piece of general advice that is useful for any trader: focus on minimizing losses. Increasing winnings and decreasing losses will both result in an increase in profit, but a focus on minimizing losses is more sustainable and successful in the long term.
Decreasing losses is much easier than increasing winnings
Decreasing losses is much easier than increasing winnings, and doing so results in the same amount or greater total profit. Unlike attempting to increase the winnings, decreasing the losses can guarantee that there will be an increase in profit. The assumption that increasing winnings will increase profit doesn’t always hold up. It assumes that total losses stay the same, which often is not the case. Your losses are under your control, the idea is not to avoid loses but to try to keep them smaller.
You can’t control the market but you can control your own actions
As mentioned before, the concept that increasing winnings will increase profit is an illusion. No matter how good of a trader you are you can not control the market. What you can control is your losses. You are the sole person in control of your actions in the market. You choose when to enter and exit and as a result you can definitely control where and when you close a trade. By being in complete control you have a better grip on the market and will ultimately end up with greater profit.
Slow down and calculate the risk before you begin trading
Calculating risk and more generally slowing down before beginning your trade are important aspects of trading. By beginning your trade by calculating potential losses, you are more aware of them, and more likely to accurately react, respond and avoid them. This helps you to have a more efficient, effective and profitable trades. Check out the article 6 Steps to Minimizing Loss and Maximizing Profit for tips on how to slow down and focus on risk more effectively.
It is apparent that trading while being aware of risk and with the mindset of decreasing your losses is a much more efficient method. The real leverage is in risk management. Only by ensuring that your losses are as small as possible can you guarantee that your total profit is truly at its maximum.